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The Sinocism China Newsletter For 08.31.12

"Sinocism is the Presidential Daily Brief for China hands"- Evan Osnos, New Yorker Correspondent and National Book Award Winner

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…as of August, the government owed some 5 billion yuan to construction companies for vacant and incomplete buildings in Kangbashi.

Efforts to pay off debt have been complicated by falling demand for undeveloped land, which the Ordos government – like counterparts across China – auctions to property developers. City revenues from land transfers declined 80 percent in the first half from the same period 2011.

And the city has found it increasingly difficult to pay off creditors with land in lieu of cash.

“In the past, the government used land for repaying debt,” said a project manager for a local road contractor. “But land is losing value now, and companies are unwilling to accept it.”

As specialists in modern Chinese history, we see ample precedent to suggest that, despite the Communist Party’s ongoing struggle to maintain legitimacy, it could remain in secure power for the foreseeable future at the least…

China’s military is presently powerful enough and its diplomacy stable enough that the Communist Party faces no realistic threats from outside. Internally, its control over society is effective enough that, while unrest and discontent may be widespread, there are neither well-organized opposition parties nor rebellious armies that might seriously challenge the central government. For now, the Communist Party finds itself in a position that would be enviable to the officials of the late Qing. It could, if it wished, reinvent itself with a new legitimizing narrative, or even open the way to a new multiparty political structure as the Nationalists did in Taiwan, likely without fear of being overthrown in the process. If it does not make such changes, however, then it seems likely that the corruption and internal dissent of today will continue to mount. If that happens, then it is likely only a matter of time until that dissent and corruption reach a critical mass necessary to end the regime. But, as the world learned from the late Lord Macartney’s failed prediction, those processes can take many generations longer than we might expect. Even if the Communist Party’s legitimacy does weaken enough for the party to fall, it might not be in any of our lifetimes.

Information on how Chinese banks may have routed money on behalf of Iranian banks and corporations is more valuable than any monetary settlement the authorities could win from the global banks, law enforcement officials with knowledge of the cases said, because the United States could use the information to strengthen its efforts to choke off economic dealings with Iran.

The prosecutors are in the early stages of examining a handful of Chinese banks with operations in New York. They are concerned that the banks may allow clients suspected of financing weapons development to open accounts in China, and then get access to dollars through money transfers from a foreign bank by way of its American subsidiary…

Part of the problem with Chinese banks, the officials said, is that unlike their European counterparts, the banks and their regulators have largely ignored American authorities’ requests for information.

China is not happy with America’s ability to force global banks to either provide information or lose access to the US banking system, a penalty that is effectively a death sentence for a financial institution. Last month the US sanctioned the Bank of Kunlun, controlled by the China National Petroleum Corporation, for Iran dealings, a move that upset Beijing and perhaps was part of the impetus for the August 22 People’s Daily piece “加紧制裁伊朗 打压欧洲银行 美国想借反洗钱稳固金融霸权 US Using Anti-Money Laundering to Strengthen its Financial Hegemony”. Effective US control of the global banking system is a very valuable US strategic asset, and it drives China nuts.

China Copper Demand Seen Growing at Slowest Pace in 15 Years – Bloomberg – Usage may increase 5 percent to about 7.7 million metric tons supported by demand from the power industry, Yang Changhua, who’s studied the market for more than a decade, said in a phone interview from Beijing. “It could turn out to be even lower, and we’re not optimistic about next year,” Yang said yesterday.

Carrefour Denies News of Chinese Business Sale-Caijing – Carrefour, the world’s second-largest retailer, denied news that it would sale its Chinese business, after it announced to pull out of Singapore in the year end in a move to free up cash to cut debt. The company will continue to invest in China, and “Chinese market will still make steady progress,” said a spokesman with its public relations department in China.

Kevin Rudd joins the China bulls | | MacroBusiness – Find below the text of speech given by Kevin Rudd today. More of the same China commodity intensity for ever, though at least Garnaut’s China caution gets a mention. What seems to have passed our entire elite by the possibility that China will be fine and will continue to grow happily but we won’t benefit any longer. If Michael Pettis proves correct, our entire elite should be condemned.

POLITICS

Dalai Lama sees encouraging signs of shift in China | Reuters – There are encouraging signs that attitudes towards Tibet are shifting in China, the Dalai Lama said on Wednesday, adding that the exiled Tibetan leadership is ready for fresh talks on his homeland if there was a genuine change of heart in Beijing.

360点火 百度应战 搜索上演“三国杀”_财经频道_一财网 – maybe the real risk to baidu from the curent battle with qihoo. zhou hongyi trying to play the anti-monpoly card, baidu is an effective monopoly// 周鸿祎心里清楚，要想赢得这场战争，必须要做好“合纵连横”，而由此引发的国内互联网巨头混战，将重新划分互联网江湖的敌友态势。

Inside Life at Qihoo 360: Working Under Constant Fear of CEO Zhou Hongyi [EXCLUSIVE] – There are several dozen people who have followed Zhou for 8 to 10 years. They don’t necessarily like Zhou, but they’ve become accustomed to his style and are well compensated with stock options. The old [Qihoo] 360 team behaves like pirates; they resent each other, but they work together for hopes of stock options and out of fear of the alpha-wolf leader. Only people with certain types of mentalities can stay for long

Unleashing the Crocodile: What Alibaba’s Jack Ma Can Teach American Entrepreneurs | PandoDaily – highly recommend this film// “Crocodile in the Yangtze” is the first film by Porter Erisman, a former TV host and ad man who was one of the first Westerners to work for Alibaba. Erisman, an American, was a vice president at the company for seven years, at various times leading the company’s international website operations, international marketing, and corporate affairs. He first went to China for a short stint in 1994, when he hosted a travel TV show called “China Through Foreigners’ Eyes, and returned in 1998 after getting his MBA. After two years at ad agency Ogilvy & Mather, he went on to Alibaba to help expand its business-to-business operations to the US. While that goal is yet to be fully realized, it hasn’t hurt the company too much. Just by focusing on China, Ma has managed to grow the Alibaba Group into a $40 billion concern.

Out of Focus: China’s First Big LBO Deal is a Headscratcher | China Private Equity – That leaves M&A as the only viable option for the PE investor group to make some money. I’m guessing this is what they have on their minds, to flip Focus Media to a larger Chinese acquirer. They may have already spoken to potential acquirers, maybe even talked price. The two most obvious acquirers, Tencent Holdings and Baidu, both may be interested. Baidu has done some M&A lately, including the purchase, at what looks to many to be a ridiculously high price, of a majority of Chinese online travel site Qunar. So far so good. The risk is that neither of these two giants will agree to pay a big price down the line for a company that could buy now for much less… I’m fully expecting to be proven wrong eventually by this powerhouse group of PEs, and that they will end up dividing a huge profit pile from this Focus Media LBO. If so, the last laugh is on me. But, as of now, the Focus deal’s investment logic seems cockeyed.

FOREIGN AFFAIRS

CHINASCOPE – PLA Daily: U.S.-Japan Security Treaty Can’t Be a Protecting Shield – On August 29, People’s Liberation Army Daily, the official mouthpiece of the Chinese military, published a commentary on the recent renewed dispute over the Diaoyu Islands (called the Senkaku Islands in Japan), titled “Is the U.S.-Japan Treaty of Mutual Cooperation and Security a protecting shield for Japan?” The article stated that, although the United States holds that the issue of the Senkaku Islands falls within the scope of the Article 5 of the 1960 U.S.-Japan Treaty of Mutual Cooperation and Security, the U.S. government will not dispatch troops to solve the conflict.

“More ‘doing’ required”: Ding Gang brings the taoguang-yanghui debate to the South China Sea « southseaconversations 讨论南海 – Ding Gang, senior reporter at the People’s Daily, had an opinion piece in yesterday’s Huanqiu Shibao, titled, ‘Ding Gang: more “doing” required in the South China Sea‘…he seems to be arguing that while China has done well out of the Scarborough Shoal standoff, next time it should be Chinese authorities, rather than the Philippines’ navy, who kickstart the original incident…Ding’s argument draws its intellectual and political power from the ongoing debates over the famous ‘taoguang yanghui/yousuo zuowei‘ dualism, a legacy of the “28 Character Foreign Policy Guideline” attributed to Deng Xiaoping.

Krugman–Fear-of-China Syndrome – NYTimes.com – So who’s actually financing the US budget deficit? The US private sector. We don’t need Chinese bond purchases, and if anything we’re the ones with the power, since we don’t need their money and they have a lot to lose. In fact, we don’t want them to buy our bonds; better to have a weaker dollar (a point that the Japanese actually get.) To make excuses for Rob Portman, lots of people keep getting this wrong, even after all these years. But really, truly, the last thing we need to worry about is whether the Chinese love our bonds.

Pakistan in talks to hand port to China – FT.com – dust off those “string of pearls” reports// Pakistan is planning to transfer operational control of its strategically important Gwadar deep water port from Singapore’s PSA International to a Chinese company, according to a Pakistani minister.

For Cnooc Chairman, Oil Rigs Are a ‘Strategic Weapon’ – WSJ.com – BEIJING—When China launched its first deep-water oil rig in May, Cnooc Ltd. CEO -0.07% Chairman Wang Yilin delivered a message to employees and his Communist Party superiors about what it meant to Beijing’s ambitions abroad… “Large-scale deep-water rigs are our mobile national territory and a strategic weapon,” he told a crowd gathered at Cnooc’s glittering headquarters in central Beijing as well as rig workers by videoconference.